JPMorgan Earnings Fail to Thrill

JPMorgan Chase JPM reported lower earnings amidst slower trading activity and a difficult investment period. Investment banking operations saw a 56% drop in profits to $726 million, down from $1.6 billion in the previous quarter and $1.5 billion in Q4 2010. The bank net income totaled $3.7 billion, or 90 cents a share, with revenue of $22.2 billion. Despite the sharp drop at the end of 2011, the bank still posted a record profit for 2011 of $19 billion, or $4.48 per share, with revenue at almost $100 billion ($99.8 billion). JPMorgan was down heavily in premarket trading, with a loss of over a point or around 3%. The firm has also reported a loss of $567 million before taxes in debt-valuation adjustments (DVA) in the investment bank operations. The bank also spent $528 million for additional litigation reserves "predominately for mortgage-related matters," as the company put it. Largely due to losses in investment banking profits, the firm laid off 616 employees from its investment banking division and average compensation per employee fell to $341,551 for 2011. Still, cutting costs have not been enough for the investment bank, which failed to maintain its previous levels of profitability. This is due to a number of factors; lower volumes have hid trading revenues. The firm expereinced DVA losses of $135 million in fixed income markets and $27 million in equity markets, with equity markets revenue down $779 million, or 31% from the previous year. This is largely due to lower market volumes, which have restricted the bank's opportunities to invest in equity markets and collect investment banking fees, which were down a total of 39%, or $1.1 billion. Debt underwriting fees were down 40% to $553 million, equity underwriting fees fell 65% to $169 million, and advisory fees fell 6% to $397 million. The bank's consumer and business banking results also disappointed, with a net income of $802 million for the division, a decrease of 16% on the prior year, which saw profits of $952 million. Net revenue fell 2% to $4.3 billion for consumer and business banking, with noninterest revenue settling at $1.6 billion. While the firm's investment operations have become less profitable for the company, its lower profits from commercial and business banking are also a cause for concern. Banks, particularly large investment banks, were not looked at kindly in 2011, when the Occupy Wall Street movement gave the industry a public relations black eye and the Move Your Money movement picked up steam after Bank of America BAC, Wells Fargo WFC, and Citigroup C flirted with new fees to individual customers. Troubles in Europe's bond markets, the S&P downgrade of American debt, and an easing of trading volume due to market uncertainty at the end of 2011 all made it difficult for investment banks to recuperate lost profits from commercial and personal banking operations. JPMorgan's disappointing results still met estimates, as analysts had anticipated a fall in investment bank income. Loan activity has also picked up as confidence in the economy has helped credit to begin flowing again. CEO Jamie Dimon noted that, "as the economy continues to recover, we are gratified to see signs of improvement in loan demand and credit quality." Improvements in credit still did not save the bank's balance sheet, and JPMorgan will still need to figure out how to make its investment operations profitable in 2012.